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Sunday, May 2, 2010

China's Pakistan Corridor

Balochistan is treacherous territory for many, but Beijing keeps buying its way in.

In the Pakistani province of Balochistan, South Asia and central Asia bleed into the Middle East. Bordered by Afghanistan, Iran and the Persian Gulf, and well endowed with oil, gas, copper, gold and coal reserves, Balochistan is a rich prize that should have foreign investors battering at the gates. But for a half-century it has been the exclusive playground of the Pakistani government and its state-owned Chinese partners. China would prefer it to stay that way.

China is Pakistan's oldest military and political ally, but in the last two decades it is the economic component of the alliance that has taken center stage. Pakistan, and in particular Balochistan, is China's physical link to its sizable investments in Iranian gas, Afghan hydropower and Gulf oil. Explains Andrew Small, a fellow at the German Marshall Fund, the Sino-Pak relationship "matters more now, because of India's economic growth. Pakistan being a trade and energy corridor means that possible pipelines and projects [in Pakistan] have a strategic significance beyond the specific investments." Chinese control of Pakistan's commodities corridor can "bind India down in South Asia, restricting its capacity to operate elsewhere."

According to the Pakistani government, Chinese companies have poured at least $15 billion into Baloch projects: an oil refinery, copper and zinc mines and a deepwater port at Gwadar, in the Gulf of Oman. "They wanted Gwadar to be another Dubai," says Khurram Abbas, the port's managing director, "to capture the transit trade with countries that are landlocked, like Afghanistan, and to encourage transshipment trade from the Persian Gulf to East Africa."

China's Tianjin Zhongbei Harbor Engineering has invested $200 million to build the first three berths and plans to invest a total of $1.6 billion to expand the port in the future. But business at Gwadar has been slow. Though the three berths have the capacity to handle $2 billion worth of cargo a year, the port saw only $700 million in 2009. "The challenge," says Abbas, "is that Gwadar is not yet linked to the rest of the country. The government was supposed to provide road connectivity. Without roads there can be no commercial activity [in Balochistan]. And we need commercial activity, investors to set up factories around Gwadar, to get cargo for the port."

China is taking matters into its own hands, starting to build a highway from Gwadar to the capital of Balochistan, Quetta, on the Afghan border, where it will connect to Pakistan's national highway network, and from there to the Karakoram Highway that leads into China. China's Harbor Engineering Corps is also working on a new airport at Gwadar, due to open in 2013.

Infrastructure is not the only challenge that Chinese investors in Balochistan face. The province is a key battleground in the wars currently threatening Pakistan. Quetta is rumored to be hiding wanted leaders from the Afghan Taliban. Small towns in the Baloch heartland, meanwhile, are a launchpad for a decades-old separatist movement that capitalizes on populist resentment of federal agencies and foreign investment.